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Redundancy: basic information

If you are just looking for an agreement

If you have reached this page looking for draft letters for a redundancy situation, you can find them at Redundancy.

This article is based on the Employment Relations Act 1996 (ERA).

This article will be useful to both employers and employees. It discusses the rights and responsibilities of both parties.

Introduction

Being made redundant" is sometimes used as a euphemism for being dismissed. This is wrong. Neither in law nor in the English language does "redundancy" mean losing a job or being sacked. "Redundant" means "superfluous, excessive

Redundancy is a reason for dismissal and is not itself dismissal. In particular it is not unfair dismissal although a dismissal “by reason of redundancy” may be unfair dismissal if the facts warrant it.

The 1965 Redundancy Payments Act gave the statutory right to "redundancy pay" to employees dismissed by reason of redundancy and since then the expression has become a common part of general language.

Quite separately from any right he may have to statutory redundancy pay, an employee may, if his service agreement so provides, be entitled to contractual redundancy pay. In this article, we concern ourselves only with statutory redundancy pay.

Redundancy involves dismissal and as with any other dismissal, it is essential for the employer to go through the statutory disciplinary/dismissal procedures introduced in October 2004. Failure to do so will result in the redundancy dismissal being automatically unfair dismissal, with the consequences which automatically follow.

Definition of redundancy

Redundancy has two different meanings for the purposes of UK employment law. One derives from UK legislation and the other from European law.

According to the Employment Relations Act 1996:

An employee who is dismissed shall be taken to have been dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to the fact that:

  • the employer has ceased, or intends to cease either to carry on the business for the purpose of which the employee was employed, or to carry on the business in the place where the employee was employed.

OR

  • the requirements of that business either for employees to carry out work of a particular kind or at a particular place, have ceased or diminished, or are expected to cease or diminish.

A dismissal by reason of redundancy is, on the face of it, fair. Whether such a dismissal is in fact fair or unfair will then turn on whether the Tribunal considers that the employer acted reasonably in treating the redundancy" as a sufficient reason for dismissing the employee".

Basic calculation of redundancy pay

Statutory redundancy pay is calculated according to a formula set out in ERA 1996. The application of the formula is:

  • Half of one week's pay for each full year worked between his 18th and 22nd birthday;
  • One week's pay for each year worked between 22nd and 41st birthday;
  • One and a half week's pay for each year worked after 41st birthday.

Only the most recent 20 years are taken into account for the purposes of this calculation if a long service employee is being dismissed. Service before age 18 is not taken into account.A week's pay for those on a fixed salary is assessed by reference to pay in the final week of employment. For those on variable pay there are special rules based on the average weekly pay of the previous 12 weeks.

Statutory redundancy pay entitlement is in addition to contractual entitlements. A redundant employee is fully entitled to his proper notice of dismissal or pay in lieu and any other payments to which he may be entitled pursuant to contract, as well as to statutory redundancy pay.

Full time to part time

For avoidance of doubt, this note is to confirm that it is possible, although not common, that in law a change from full time employment to part time employment can count as a dismissal by reason of redundancy followed by re-engagement on new terms. The question depends on whether on the facts of any particular case the statutory definition of redundancy is satisfied.

Whether the dismissal in such a case is or is not unfair dismissal is a separate question.

There is a fine line between a situation where the employee's new job is the same as his original full-time job saves that certain terms and conditions of employment have been altered. This is for the tribunal to decide.

Age limits

Service before a person's 18th birthday does not count for statutory redundancy pay calculations. This is one of the few differences between calculations of basic award on unfair dismissal and of statutory redundancy pay.

Similarly, an employee made redundant after his 65th birthday does not qualify for statutory redundancy pay.

Alternative employment

An employee who unreasonably refuses reinstatement, or an offer of suitable alternative employment, in either case to be available within four weeks of his dismissal, will not be entitled to statutory redundancy pay.

However, if an employer has alternative work available but does not offer it to the redundant employee, the redundancy dismissal of that employee may well be unfair dismissal entitling the employee to compensation greater than he would get as redundancy pay.

Civil servants / public officials

Crown and civil servants are not eligible for statutory redundancy pay. However, their terms and conditions of service usually give those equivalent or better rights - these are contractual not statutory rights.

Local Authority staff and other public sector employees who are not civil servants are eligible for statutory redundancy pay under normal rules and are eligible for special treatment under Local Government Regulations.

Special provision is made to preserve statutory redundancy pay rights of public sector employees, including local authority staff, if their employment is transferred from one public sector employer to another as they cannot take the benefit of the associated employer rules which apply in the private sector.

Members of the armed forces are not entitled to statutory redundancy pay.

Selection for redundancy

Unfair dismissal compensation has a normal absolute maximum of $65,200 as of 1st February 2005. Thus an employee who has been made redundant may well seek grounds for claiming that his redundancy dismissal was unfair dismissal. Improper selection for redundancy is one such ground.

Another relevant factor for newer employees is that the qualifying period of continuous employment for unfair dismissal claims, normally one year since June 1999 and sometimes zero, is less than the two year period required for redundancy pay claims.

Selection of employees for redundancy can be unfair on general grounds or because statute so provides. Employers are well advised to keep careful records so that, if necessary, they can demonstrate to an employment tribunal that redundancy selection was fairly and properly handled.

Redundancy dismissal is automatically unfair dismissal if the selection for redundancy was:

  1. For any of the reasons specified in ERA 1996;
  2. Related to trade union activity/membership.

ACAS advisory booklet on "Redundancy handling" contains a section on "Selection Criteria". This booklet should be carefully studied in any situation in which questions relating to proper selection for redundancy may arise.

Sometimes, redundancy can be unfair because it might have been more appropriate to select a different employee. There are many different answers relating to the different circumstances involved and therefore employers should think thoroughly through their decisions when selecting an employee for redundancy.

Written details of payment

On making a redundancy payment an employer has a legal duty to give the employee a written statement showing how it was calculated.

An employer who does not do this can be penalised in two ways:

  • He will be committing a criminal offence and risks a fine;
  • There is a possibility that the employee will plead that the money paid to him was not statutory redundancy pay and therefore the Tribunal will make the employer pay a second time.

Related documents: Redundancy

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.

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